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STRS Ohio Staff Analysis of Issue 2

Posted: Oct. 3, 2017

Summary of Proposed Law

State Issue 2 is a ballot initiative stating that neither the state of Ohio, nor any other state entity shall enter into any agreement with the manufacturer of any drug for the purchase of a prescribed drug unless the net cost of the drug is the same or less than the lowest price paid for the drug by the United States Department of Veterans Affairs (VA).

STRS Ohio is not a proponent nor an opponent of the proposed law because there isn’t enough data available to know the long-term impact to our members. Several of the outstanding matters are outlined below. We do, however, believe there is likely to be short-term disruptions to our drug plan and want to make members aware of this.

Key matters to be determined:

Whether or not STRS Ohio is considered an “other state entity.” This is not a term currently defined in state law. STRS Ohio is not specifically included in nor excluded from the language in the ballot initiative. Issue 2 requires the General Assembly to enact additional laws to carry out the provisions of Issue 2, and these laws would likely define what organizations are considered an “other state entity” with respect to this law.

If STRS Ohio is deemed an “other state entity,” there are questions regarding how the law would be administered, namely:

The law in Ohio would forbid STRS Ohio from paying more for a drug than the VA; however, what the VA pays for a drug is unknown — and neither the state nor STRS Ohio have authority to require the VA to share drug price information.

While the law can limit what STRS Ohio is allowed to pay for a drug, it cannot require the drug manufacturers to sell the drug to STRS Ohio at the price the VA pays. There are no provisions in the law that would allow STRS Ohio to pay more for the drug, so the drug would have to be dropped from the plan.

In the long term, there might be some financial benefits to being in the group of state entities and receiving additional discounts; however, there will be disruption in the short term when STRS Ohio will not be allowed to purchase drugs that are only offered by the manufactures at a price higher than what is allowed by law.

If STRS Ohio is not deemed an “other state entity,” the cost the system pays for drugs could be subject to a larger increase as manufacturers try to recoup income lost due to VA discounts being provided to groups identified in Ohio’s new law. There are basically three options for drug manufacturers to consider:

Drug manufacturers could provide the additional discounts to the groups covered by Ohio’s new law, accept the lower payments and take the financial loss. We don’t believe this is a likely scenario.

To make up for discounts provided to the groups covered by the new law, manufacturers could increase prices for organizations and entities that are not in the group receiving new discounts. This will help the manufacturers maintain profit margins and return for shareholders. We view this as a likely scenario.

Manufacturers could increase the base price of drugs for the VA and base required discounts off the new higher prices.

The concerns outlined above are not likely to be answered until the Ohio Legislature or the Ohio courts provide guidance. That is why STRS Ohio is not taking a formal position on Issue 2 and why we have reason to believe that there will be short-term disruption in our current prescription drug plan.

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